August 30, 2014
– Vietnam has lost its position now as the most attractive investment destination in ASEAN, which it was named during 2007 – 2010. In addition to long-time rivals, Vietnam now has to compete with emerging economies.
In its recent study surveying 1,609 foreign-invested enterprises (FIEs) from 49 different countries, the Vietnam Chamber of Commerce and Industry (VCCI) found that Vietnam is no longer the most favored destination for investment as she used to be in 2007-2010. She has to compete now with traditional long-time archrivals in the region (China, Thailand and Indonesia) as well as the emerging countries. Three countries which were previously not in direct competition with Vietnam in respect of foreign direct investment (FDI) attraction – Laos, the Philippines and Myanmar – have emerged as new rivals.
The responding FIEs told VCCI they felt that the business environment of Vietnam had become less attractive due to a host of unofficial costs, administrative procedures, complex legislation and substandard quality of public services such as education, health and infrastructure.
“Investors consider Vietnam’s infrastructure on a par with that of neighboring Cambodia and Laos,” said Dau Anh Tuan, head of the legislation department at VCCI. “More surprisingly, in terms of corruption and legal burden, Vietnam is even ranked lower than the two neighbors.”
In a recent meeting with Government officials, Virginia Foote, co-chair of the Vietnam Business Forum (VBF), said she was concerned that corruption is an unsolvable problem. An economy where most transactions are made in cash, where payment of fees and fines to the Government are made in cash, would lead to corruption or stagnation, or even both, Foote said. For most of the times, the Government failed to take timely decisions. Administrative procedures are complicated and cumbersome with multiple engagements by agencies while laws are not consistent, and court implementation is not effective, she complained.
While those countries which once ranked below Vietnam in ASEAN are emerging, the region’s top six have made substantial progress. Aside from gross domestic product (GDP), technology applications or protection of property rights, Vietnam is lagging behind in tax collection. The “Doing Business 2014” report prepared by the World Bank said the average tax payment time in ASEAN-6 is 171 hours per year, whereas that of Vietnam is 876 hours, ranking 149 among nearly 189 countries and territories.
Yoshihisa Maruta, chairman of the Japan Business Association in Vietnam (JBAV), said that by this May, JBAV had had 1,320 members, making it the second largest association of Japanese businesses in ASEAN, behind only the Thailand office. However, businesses are feeling increasingly dissatisfied with the business environment here. According to a survey of Japanese-invested companies in Asia and Oceania conducted by the Japan External Trade Organization (JETRO), more than 60% of the corporate respondents said their operations were hindered by the following issues: higher labor costs, complex administrative procedures, intransparency-plagued government policies, cumbersome tax procedures, imperfect legal system and intransparency in law enforcement. “The survey results are less positive than in other ASEAN countries.” said Maruta.
Talking about the improvement of the business environment, Nguyen Dinh Cung, rector of the Central Institute for Economic Management (CIEM), said that technically, many things could be done right now, customs clearance time for example. “Import-export value stands at US$270 billion now. If the time for customs clearance could be cut to only seven days, then a huge sum would be saved, profit and added value would rise, and working capital turnover recycle would be faster.”
According to CIEM, Vietnam can skip four of the nine procedures for business establishment as indicated by the “Doing Business” report, which would help the country move up 50 notches. As for the protection of investors, there are lots of thing Vietnam can do to move up the ladder from 175 to 120. However, Cung seemed to be doubtful: “If we managed to make things better, the business environment of Vietnam would achieve a significant progress, but it would still be way below the average of the ASEAN-6,” he said.
The amended Enterprise Law adopts a new approach, requiring businesses to renew themselves for international competition. The drafting committee has given a quantitative forecast of the impact of the law. It is predicted that Vietnam’s market entry could move yup 50 spots from the bottom half to the 60th position among 189 nations and territories classified by the World Bank.
“This is a very good precedent and I think this approach should be specified as a mandatory requirement in the process of making new laws or amending other business-related laws in Vietnam,” said VCCI Chairman Vu Tien Loc.
(By Tu Giang)